Tim, Al, and Pat contributed assets to form the equal TAP Partnership. Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000). Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000). Pat contributed cash of $60,000 and a fully depreciated property ($0 basis) valued at $40,000. Which of the following tax treatments is not correct?
A) Tim's basis in his partnership interest is $120,000.
B) Al realizes and recognizes a loss of $10,000.
C) Pat realizes a gain of $40,000 but recognizes $0 gain.
D) TAP has a basis of $80,000, $50,000, and $0 in the land and property (excluding cash) contributed by Tim, Al, and Pat, respectively.
E) All of these statements are correct.

Question

Quizplus · Accepted Answer

Al's contribution of land had a fair market value less than its basis which results in a recognized loss of $10,000. All other tax treatments are correct. Tim's basis in his partnership interest is calculated as $40,000 + $60,000 + $60,000 = $160,000. Pat realizes a gain of $40,000 on the contributed property but does not recognize it due to the fully depreciated basis. TAP's basis in the assets contributed by Tim, Al, and Pat is calculated as $60,000 (fair market value) + $40,000 (fair market value) = $100,000 for Tim's land, $40,000 for Al's land, and $40,000 for Pat's property.

Tim, Al, and Pat Contributed Assets to Form the Equal